Increased participation in cultural activities Culture Page 2
Tuesday, September 20 2016 Year V Nr. 1134 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Gaming
Billionaire Razon plans casino despite Duterte’s crackdown on gambling Page 7
www.macaubusinessdaily.com
Fighting leverage
Markets pros
Chinese central bank succeeds in moderating vicious interbank lending Page 10
Traders with stronger hunches make more money, last longer Page 16
Hotels Display Staying Power Hospitality
In August, hotel room rates dipped 12.2 pct y-o-y. But occupancy rates rose 4.4 in the period. In 2015, hotel receipts dwindled 6.6 pct y-o-y to MOP26.04 bln. While sector expenditure increased 1.6 pct to MOP23.44 bln. Hotel operators hold a positive outlook for the upcoming Golden Week holidays. Pages 2 & 3
Falling down on following up
Dissatisfied workers
SMEs Local SMEs attending procurement events hosted by local gaming operators. They’re demanding more follow-up and consistency post-event. Reflecting the fierce competition in the business sector. For their part, gaming operators expect both new and old players to impress. Page 5
Unfair dismissal. So say local construction workers at Grand Lisboa Palace. Accusing contractors of prioritising non-resident workers against gov’t principles. SJM executive director Angela Leong says the dispute has affected the progress of construction and caused delays.
Real estate, sweet real estate
Labour Page 4
HK Hang Seng Index September 19, 2016
23,550.45 +214.86 (+0.92%) Worst Performers
China Life Insurance Co Ltd
+4.37%
China Overseas Land &
+2.74%
BOC Hong Kong Holdings
-4.82%
Tencent Holdings Ltd
-0.19%
China Resources Land Ltd
+3.92%
Industrial & Commercial
+2.07%
Sands China Ltd
-4.59%
CNOOC Ltd
-0.11%
Belle International Holdings
+3.42%
Ping An Insurance Group Co
+2.05%
China Mengniu Dairy Co Ltd
-2.99%
Cheung Kong Infrastructure
-0.07%
Hang Lung Properties Ltd
+3.39%
New World Development
+2.00%
Hengan International Group
-1.85%
Li & Fung Ltd
+0.00%
Sino Land Co Ltd
+3.07%
Henderson Land Develop-
+1.98%
Galaxy Entertainment Group
-0.83%
Link REIT
+0.00%
25° 30° 26° 29° 25° 29° 26° 28° 26° 29° Today
Source: Bloomberg
Best Performers
Wed
Thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
Property expansion China’s property sector saw growth accelerate in August, official data showed yesterday. With more local governments rolling out tightening measures to curb speculation. Of 70 large and medium-sized cities surveyed in August, 64 reported new home price climbs m-o-m. Page 8
2 Business Daily Tuesday, September 20 2016
Macau In Brief Tourism
Mid-Autumn Festival tourist boost Macau welcomed 601,068 tourists during this year’s three-day weekend holiday for the Mid-Autumn Festival, a 5.5 per cent increase from last year, according to data provided yesterday by the Public Security Police Force (PSP). A total of 1.8 million people entered or exited the MSAR between September 15 and 18, with 73.3 per cent of movements being registered at the Border Gate. According to data, of the 1.3 million people who entered or departed through the Border Gate, 664,229 were entering the city. The Outer Harbour Ferry Terminal posted the second largest number of movements during the holiday, with a total of 195,060 registered entries and sorties, of which 97,830 were entries to the city. N.M. Society
Walk for a Million in December Vong Kok Seng, Director of Charity Fund From the Readers of Macao Daily News, announced that the Walk for a Million will be held on December 11 this year, reports local broadcaster TDM Chinese Radio. Meanwhile, Mr. Vong indicated that the association will continue to provide study grants to needy students and conduct scholarships programmes. The association distributed around MOP1.8 million last year, with 1,100 students benefiting. Meanwhile, the rewards programme for students to broaden their horizons event disbursed around MOP2 million, with 687 teachers and students participating in the programme. C.U. Labour
Putting a cap on public employees The MSAR Government is planning to limit the increase of civil servants, according to statements by Secretary for Administration and Justice Sonia Chan Hoi Fan.The Secretary stated that the number of public service workers will be defined by government budget availability and that the limit will be based upon numbers registered in 2016. Sonia Chan also stated that any salary adjustment possibility for public service workers will only be able to be introduced next year, once the current government review of public service workers careers’ was finished. N.M. Tourism
MGTO: Travel alert system launched year-end The city’s travel alert system will be officially launched by the end of this year, the Director of the Macao Government Tourism Office (MGTO), Helena de Senna Fernandes, has reiterated according to a report by TDM Chinese Radio. The travel alert system will be announced as a dispatch signed by MSAR Chief Executive Chui Sai On to be published on the government’s official gazette. The MGTO Director said a draft of the travel alert system has already been completed. MGTO has discussed closely with the city’s insurance industry and the Monetary Authority of Macau (AMCM) in order that the insurance companies in the city can introduce related insurance products based upon the new system. A.L.
Construction
Government departments in remodelling mode The Office for Personal Data Protection is to undergo a MOP22.2 million revamp, while the Cultural Affairs Bureau is spending MOP44.5 million on government buildings in Tap Seac Square
T
he Office for Personal Data Protection (GPDP) has awarded a MOP22.2 million (US$2.8 million) contract to AD & C Engenharia e Construções Companhia Limitada for reconstruction works of its offices, according to a dispatch in the government’s Official Gazette released yesterday. The contract for the revamp work in the GPDP office on the 17th floor of the China Plaza building in Avenida da Praia Grande will be divided into two payments, with MOP8 million disbursed this year and MOP14.2 million in 2017.
According to a response sent by the GPDP to Business Daily, the current office space has been provided to the GPDP by the Financial Services Bureau (DSF), with the data protection department stating that it ‘neither owns nor rents the office space used in its operations’.
Tap Seac Square works
AD & C Engenharia e Construções Companhia Limitada has also been awarded a MOP22.2 million contract for reconstruction works in the Archives of Macao exterior warehouse located at Tap Seac Square, according to Official Gazette releases.
The Archives of Macao are under Cultural Affairs Bureau management, which also signed a MOP30.2 million contract with Companhia de Construção Urbana J & T Limitada for remodelling work of the Tap Seac Glass House. Since March 31 the Glass House has been utilised by the Macau Trade and Investment Promotion Institute (IPIM) to promote food and beverage products from various Portuguesespeaking countries. The contract payment for the Archives of Macao works will be under the Cultural Affairs Bureau construction budget, while the Glass House works will be included in the Bureau’s Culture Fund. In response to Business Daily’s enquiries the Cultural Affairs Bureau stated that it “currently has no plan to move [the Archives of Macao] to the new Central Library”, which will be located in the Old Court Building on Avenida da Praia Grande.
Culture
Increased participation in cultural activities DSEC data reveals a significant rise in local residents watching locally-made movies and short films. Annie Lao annie.lao@macaubusinessdaily.com
A total of 302,300 individuals participated in cultural activities in the second quarter of this year, with a participation rate of 54.9 per cent, according to the latest survey on participation of residents in cultural activities in the city as revealed by the Statistics and Census Service (DSEC) yesterday. The cultural activity participation rate, which represents the percentage of individuals participating in cultural activities in the population aged 16 and above, was up by 2.1 percentage points year-on-year. These cultural activities include going to the cinema or library, visiting museums or World Heritage sites, and attending performances or art exhibitions in the city.
Indie power
The most significant increase of all cultural activities is watching locally produced movies and short films, an increase of 58.8 per cent, totalling 35,100 people. Based on type of cultural activity, going to the cinema still remained the highest local resident participation rate of all, reaching 169,800 people, an increase of 7.6 per cent year-on-year. The increase is due to the MSAR Government’s continual promotion of locally made movies and short films, as well as a number of screening events held in the city. In addition, local residents going to libraries increased by 3.1 per cent year-on-year to 114,400. Meanwhile, local residents visiting museums or World Heritage sites rose by 19.1 per cent year-on-year to 113,900, whilst local residents
attending performances fell by 0.7 per cent year-on-year to 90,500. Some 38,300 local residents attended art exhibitions, up 5.2 per cent yearon-year.
Hospitality Receipts of the hotel sector decreased by 6.6 pct y-o-y in 2015
Costly business The total number of persons engaged rose by 14.7 pct y-o-y to 45,271. Compensation of employees rose by 8.9 pct to MOP10.45 bln. While there are more hotels in town, receipts from the hotel sector decreased by 6.6 per cent year-on-year to MOP26.04 billion (US$3.26 billion), according to the results of hotels and similar establishments survey 2015 released by the Statistics and Census Service (DSEC) yesterday. DSEC says the drop in receipts was mainly due to a 10.6 per cent drop in receipts from Room Sales that amounted to MOP12.21 billion and accounted for 46.9 per cent of the total. Receipts from Food & Beverages, amounted to MOP5.49 billion, falling 2.4 per cent, while receipts from Rental of Space added up to MOP5.65 billion, rising 1.0 per cent.
The data also indicates a total of 107 hotels and guesthouses were operating in 2015, comprising 74 hotels and 33 guesthouses. The number of establishments increased by 8 year-on-year. The total number of persons engaged in the industry rose by 14.7 per cent year-on-year to 45,271, of whom 28,991 or 64.0 per cent were working in the 12 large-scale hotels employing 800 or more persons, up 8.6 per cent.
Increasing expenditure, less value
The DSEC data also shows that the expenditure of the hotel sector increased by 1.6 per cent year-on-year to MOP23.44 billion. Compensation of Employees, which accounts for 44.6 per cent of the total, rose 8.9 per cent to MOP10.45 billion, while Operating Expenses accounted for MOP10.35 billion and Purchase of Goods & Commission Paid was MOP2.65 billion, dropping 1.4 per cent and 11.6 per cent, respectively. Meanwhile, Non-operating Expenses such as depreciation and interest paid amounted to MOP8.83 billion, up 21.9 per cent year-on-year. However, Gross Value Added
measuring the sectoral contribution to the economy totalled MOP13.20 billion, down 9.2 per cent year-onyear. The Gross Surplus of the hotel sector dropped notably by 44.4 per cent to MOP2.76 billion. With the opening of several 5-star and 4-star hotels in 2015, Gross Fixed Capital Formation leapt 944.1 per cent year-on-year to MOP28.85 billion due to a significant increase in expenditure on construction and acquisition of property, as well as major renovation projects.
Business Daily Tuesday, September 20 2016 3
Macau Tourism
Wynn Palace data included for first time in MGTO hotel room occupancy and rate survey
Hotel room rates in August dip 12.2 pct y-o-y While local hotel room rates dropped in August when compared to the same month of last year, occupancy rates have jumped 4.4 per cent year-on-year Nelson Moura nelson.moura@macaubusinessdaily.com
W
hile average room rates in all types of hotel in Macau saw a 12.2 per cent year-on-year fall in August, average room occupancy rates throughout the city increased 4.4 per cent during the period, according to the latest data released yesterday by the Macao Government Tourism Office (MGTO). I n A u g u s t , av e r a g e h o t e l occupancy reached 92.6 per cent, up 4.4 percentage points compared to the 88.2 per cent occupancy rate registered for the same month one year ago. Compared to the 90.2 per cent seen in July the rate also grew by 2.4 percentage points. Local 5-star hotels, in particular,
posted the highest growth in occupancy throughout the month, an increase of 5.4 points year-onyear to 92.7 per cent compared to 87.3 per cent one year ago, making it the highest occupancy rate of all types of hotel in the city. Meanwhile, occupancy of 4-star hotels increased 3.4 percentage points to 92.5 per cent in August from the 89.1 per cent registered during the same month of 2015, while 3-star hotels posted a small 1.3 per cent increase to 92.4 per cent.
Falling room prices
The registered increase in occupancy in Macau is likely attributable to the continuous year-on-year decreases in hotel room rates. In August, a hotel room in the city cost MOP1,250 (US$156) per night on average, down 12.2 per cent compared
Wynn Palace Penthouse Bedroom
by Roger Davies
Sofitel Ponte 16
to MOP1,423 one year ago. In a month-to-month comparison, the average room rate increased 1.4 percentage points, from the MOP1,232 average rate registered in July. As seen in July, 3-star hotels in August registered the largest yearly decrease in room rates, down 15.8 per cent year-on-year to MOP839 per night compared to MOP996 one year ago. The average cost of staying one night in a 4-star hotel was reduced by 10.3 per cent year-on-year to MOP798 vis-a-vis MOP889 for the same month in 2015, while 5-star hotel rooms were sold at MOP1,547 per night on average during the month, 12.8 per cent cheaper when compared to MOP1,773 in August 2015. The MGTO data, provided by the Macau Hotel Association, includes 42 hotels in the city ranging from 3-star to 5-star, with data on Wynn Palace - which opened on August 22 - included for the first time. Data from The Rocks Hotel in Fisherman Wharf - owned by casino and hotel operator Macau Legend Development Ltd. and not included
in the July data - was also added to MGTO’s August survey.
Continuous drop in room rates
The average hotel room rate between January and August dropped 14 per cent year-on-year to MOP1,303 per night. The room price for 5-star hotels in the first eight months of 2016 was down 12.5 per cent year-on-year to MOP1,657 per night on average, whilst that of 4-star hotels and 3-star hotels declined by 16.6 per cent and 17.3 per cent year-on-year to MOP773 and MOP860, respectively. Meanwhile, for the first eight months of the year the city’s average hotel occupancy rate increased slightly by 0.1 percentage points to 83.2 per cent, while that of 5-star hotels decreased 0.8 percentage points year-on-year to 81.7 per cent. Nevertheless, both 3-star hotels and 4-star hotels registered year-on-year growth with regard to occupancy during the first eight months, with 3-star hotels’ occupancy increasing 1.8 percentage points to 88.8 per cent, and 4-star hotels’ rising 2 percentage points to 84.3 per cent.
Tourism
Hotels adopt positive outlook for Golden Week Many 5-star hotels in the city claim around 80 per cent of their rooms have been reserved for the first three days of Golden Week. Cecilia U cecilia.u@macaubusinessdaily.com
Macau’s major 5-star hotels claim 80 per cent of their rooms have been reserved for the coming National Day Golden Week beginning on October 1, according to Hong Kong media outlet Apple Daily. Since last month’s gaming revenue of the city finally rebounded after two years’ decline, the hotel industry in general believes business will improve in this year’s National Day Golden Week compared to last year’s. Many hotels claim that there are not many rooms left in the first few
days of Golden Week, with MGM Macau, Wynn and Grand Lisboa fully booked for the whole week. From information garnered from the official websites of Macau’s hotels, Galaxy’s room price has increased 65 per cent to around MOP5,400 per night during the first three days of Golden Week vis-a-vis MOP3,200 during normal weekends. Wynn Palace’s room rate increased 81 per cent to around MOP4,300 in the first three days of Golden Week, compared to around MOP2,400 during normal weekends. The Parisian Macao has also posted an extensive increase - 127 per cent - to around
JW Marriott Hotel Macau Retreat Pool Suite
MOP3,900 per night during the holidays, when normal weekends cost around MOP1,700 per night.
Similar tourist numbers
Apple Daily reports that Executive Director and Deputy Chairman of Success Universe Group Limited, Hoffman Ma Ho Man, has expressed his confidence that this year’s Golden Week will be better than last year’s, according to the revival in mass market and VIP rooms, as well as the stimulation of the recent opening
of new hotels. However, Mr. Ma noted that one can only determine the real performance of these casinos and hotels once Golden Week has passed. Mr. Ma also said that Ponte 16 has 80 per cent reservations as of last Friday, noting the high possibility of increasing the price for the remaining 20 per cent. Meanwhile, Director of Macao Government Tourism Office, Maria Helena de Senna Fernandes, when speaking to reporters at an event during the weekend, estimated that the number of tourists visiting the city during the coming National Day Golden Week will be similar to last year’s record.
4 Business Daily Tuesday, September 20 2016
Macau Labour dispute
Grand Lisboa Palace workers up in arms Local construction workers complain that Grand Lisboa Palace contractors are prioritising non-resident workers. Annie Lao annie.lao@macaubusinessdaily.com
A
group o f l o c a l construction workers on the Grand Lisboa Palace project - developed by local gaming operator SJM Holdings Ltd. in Cotai - went with legislator Ella Lei Cheng I to the Labour Affairs Bureau (DSAL) yesterday to submit a letter complaining about unfair dismissal. The legislator, helping local workers with their complaint, said that a total of 100 local construction workers from the Grand Lisboa Palace project had been dismissed by the construction company without fair reason. Most of them had worked as cleaners on the construction site. The workers claimed that they started working at the site from September 12 onwards but had received a notice of suspended employment or dismissal from the construction company of Grand Lisboa Palace after working for only two to three days. Legislator Ella Lei revealed that about 3,700 non-resident workers are currently working on the construction site. Some non-resident workers perform the same type of job as the local construction workers hired, Lei said. Lei stressed that the unreasonable dismissal of the local workers is breach of the government’s principle of hiring local workers as a priority and urged the government to resolve this issue.
local resident workers as a temporary replacement in the absence of nonresident workers due to their expired working visa permit, Mr. Choi Tui Keng, a representative of the local construction workers, told Business Daily via phone yesterday. Another reason for hiring nonresident workers is to cut costs as non-resident workers usually receive lower pay than local workers for the same job, Mr. Choi added. “About 3,000 non-resident workers and more than 100 illegal workers are working at the construction site,” Mr. Choi claimed.
He explained that the construction company had hired a total of 100 local workers but only hired them for a few days while waiting for the arrival of non-resident workers to come to Macau to work. “We couldn’t even reach out to the manager of the construction company for an explanation of why [he] only hired us for a few days and fired us afterwards,” Mr. Choi said.
Delaying project
Angela Leong On Kei, executive director of Sociedade de Jogos de Macau Holdings Ltd., when talking to reporters at a public event yesterday, said that the company is still dealing with the labour dispute. “The labour dispute will affect the new project to be completed in 2017. Not only due to the labour issue, but
also other factors may possibly occur to cause delays to the project. We hope the project can be opened by 2017,” Leong added. Furthermore, DSAL responded that the government does not allow local employment opportunities to be compromised. DSAL issued a statement last night saying that after the Bureau had had a meeting with the related construction company and the construction workers to resolve the problem yesterday the construction company promised to immediately review the number of non-resident workers hired on the construction site and will arrange for them to leave accordingly. So far, DSAL has assisted 86 local construction workers to register for employment in the city.
Cutting costs
The construction company only hired
Holy House of Mercy
Politics
Gov’t disrespectful, claims non-profit organisation
Mission to Yunnan
António José de Freitas, President of the Holy House of Mercy (Santa Casa da Misericordia), said the government showed little respect when deciding to move the First Public Notary Office out of the organisation’s property in Senado Square, local public broadcaster TDM Chinese Radio reports. Talking to reporters at a public event yesterday, he said they received the notice from the government in July stating that the First Public Notary Office would move out around the end of this year. The president criticised the process
of the government moving out of the non-profit organisation’s property, and the decision itself. He added that the rental charged is MOP1.2 million per month, which is relatively acceptable vis-a-vis the private rental market of the surrounding area. The Holy House of Mercy is now seeking new tenants, offering at least MOP800,000 but the president indicated that the Holy House will not be able to receive any income for at least three months since it is impossible for the new tenant to move in right after the Notary Office relocates.
Former Chief Executive Edmund Ho Hau Wah leads MSAR cooperation delegation to Yunnan Province. A delegation of national political advisors from Macau recently travelled to Yunnan Province to discuss possible inter-regional co-operation between officials in the southwestern region of Mainland China and the MSAR, news agency Xinhua has reported. The 40-member delegation was headed by former Chief Executive
(CE) Edmund Ho Hau Wah, arriving in Kunming, the capital of Yunnan Province, on September 18 for a fourday visit. The former Macau CE, and now vice chairman of the Chinese People’s Political Consultative Conference (CPPCC) National Committee, stated that the territory plans to become a global tourism centre and a trade co-operation platform between China and Portuguese-speaking countries, complementing Yunnan Province’s goals in many fields, Xinhua said. Edmund Ho Hau Wah also stated that the establishment of the economic, tourism and cultural circle of the New Silk Road economic belt Chinese Government plan to link China with Europe will help Macau expand its development space. N.M.
Business Daily Tuesday, September 20 2016 5
Macau
SME Local SMEs request more follow-up and consistency post-procurement evenT
Fighting for scraps Although providing a more level playing field based on quality control, procurement programmes need more call-backs post-event by the companies - while the opening up of local operators to new business sometimes leaves old partners behind. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Although late to the party, Sociedade de Jogos de Macau (SJM) has launched its Small and Medium Enterprise (SME) Procurement Partnership Programme, the last of the major concessionaires in the territory to do so. The group’s focus, the Food and Beverage (F&B) and hotel operations sectors, drew the attention of both local and internationally-linked suppliers and, while supporting local businesses by placing them on an “equal footing” - as mentioned by SJM’s Assistant Chief Operating Officer Dr. Paul Hung - some opportunities for local businesses come at a cost to others. “We try to promote all the projects [current suppliers] that we have and also the purchase of items as openly as possible to attract those who haven’t done business with SJM before,” commented Hung on the sidelines of the opening ceremony of the event, held yesterday. “The whole purpose is to try to encourage all of the gaming concessionaries to help the small and medium sized enterprises,” comments Hung, noting that the focus for SJM’s current programme has an even more stringent focus within the SME segment, the “small micro enterprise, Made in Macau”.
Made in Macau
While local companies are provided with more exposure to opportunities to partner the integrated resorts through their partnership programmes, the majority of post-event initiative falls upon the shoulders of the SME. When asked about how many call-backs their company had received after attending five different SME procurement events, all from different operators, the representative of a local frozen seafood company had a simple answer: “Zero”. “It’s a good project by the government with all the gaming industry, hotels. It’s a good opportunity for this kind of small business to co-operate with the hotels,” notes the frozen seafood company representative, praising the opportunities it, ideally, provides. But once the initial effort is undertaken, little follow-up is often achieved. “They start very loud, but then it’s
not continued much. Unless you keep calling, keep fighting and bugging them,” says the representative. “But we did, with one - The Venetian - and the end result is just one small order. I know it’s a competitive city and all these vendors and suppliers are giving good products but for us, as a small business, putting so much time and effort to get a small order [isn’t worth it].” Noting that within their industry the company has around 30-40 competitors, the representative acknowledges that they’re not the only fish in the sea. However, oftentimes they’re left waiting on the line, literally. “Because they have to go through so many departments, we need to wait to see what their answer is. ‘When we get the answer we’ll call you back’, ‘When our chef finds your food suitable, we’ll call you back’. So all these days we are just in a waiting position. We can’t do much. Apart from calling, we can’t do much,” says the representative.
History
While companies with a long history as suppliers would seem to get more weight in the procurement process, this is not always the case, with the frozen seafood representative noting that “it’s not as simple as before”. “Actually, the Lisboa - not the new one, but the old one - we’ve been doing business with them for 30 years,” says the representative,
“but when they changed, these five years, six years they’ve changed a lot, so they’ve changed the supplier too.” This, explains Hung, is to level the field. “The reality is, because the business segment is very competitive, all the vendors – be they old or new - they need to impress us that they reach our standard to start working for us. And also, the most important thing is that they can provide the things that we want at a reasonable and acceptable price . . . Anybody can join or leave any time, so it’s a non-stop game”. This welcomes new players to the field such as those from abroad partnering locally to supply international products. Such is the case of Pierre Colombet, Sales Executive for Vintages & Chateaux Fine Wines. Although having only been in Macau for three months, the executive has already attended three separate SME matching events - for Galaxy, MGM and Melco Crown. “It’s very different; there are different approaches which are used,” comments Colombet on the events. “Sometimes, you encounter more of the business-side; you don’t get the access to speak technically about wine with people including the chefs. Here this event has been a bit different,” comments the sales exec, noting the direct contact with chefs and food and beverage personnel, immediately apparent in the dress and chef hats worn by some of the interviewers. “In terms of gaming there’s a large amount of wine that is distributed here,” notes Colombet, commenting upon just one aspect of the F&B segment that SJM was focusing on for the event. However, the overall demand for the sectors focused on yesterday, notes Hung, is high.
“Hotel management, hotel operations, F&B, marketing – all these are the major areas that every property will be targeting,” notes Hung, noting a website application is now available to those wishing to join the programme. “They can register at any time; they can send in their information to see whether there’s a match, so that’s the magic of the whole programme,” Hung opines.
Scale
“So far we’ve found out that they’d rather get small orders from different vendors, a little bit from here, a little bit from here,” comments the frozen seafood representative. “And this is fair. So maybe that’s the reason why they just buy a little from us.” This approach, described by Hung as being “not only [focused] on the SME business promotion - it’s also involving those smaller enterprises”, while allowing for smaller companies to enter the market does not necessarily mean repeat business and can mean committed resources, with a small outcome. “I’d rather they put down one big order twice a year rather than us having to put so many resources into this one time of business,” states the representative. Despite the focus of the event being on “even-smaller sized enterprises” as described by Hung, representatives from a number of bank chains had booths at the procurement event, detailing services focused on business loans - ranging from MOP200,000 to MOP10 million and sporting ‘flexible payment terms’. Also commenting on the sidelines was SJM director Angela Leong, who noted that in addition to efforts by gaming operators “the government already has many policies in place to provide opportunities for the local SMEs [. . .] in order to create more job opportunities.”
6 Business Daily Tuesday, September 20 2016
Macau
Gaming High foot traffic between Sands properties
Praise for The Parisian Macao A sense of grandeur and hitting the sweet spot for mass market Mainland visitors as well as serving as a pivotal link between Sands’ properties on Cotai driving foot traffic sets a positive pace for The Parisian Macao. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he predicted growth rate of gross gaming revenue for September is expected to “accelerate significantly” when compared to the previous month, says Grant Govertsen of research company Union Gaming. Highlighting that September gross gaming revenue
seems to be “quite solid”, in particular in the mass segment, and augmented by a “somewhat lucky” streak in the VIP market (month-to-date), the analyst reiterates a ‘Buy’ rating for shares of Sands China Limited, parent of the Cotai properties of The Venetian Macao, Four Seasons, Cotai Central and the recently-opened The Parisian Macao. “We think Parisian is the right product targeting the right market
segments at the right time”, comments the analyst, opining that the property has managed to hit the ‘sweet spot’ of mass market visitors from Mainland China. This is classified as involving a “sense of grandeur, massive scale, European highlights”.
Foot traffic
The result is multiples of foot traffic between Sands China’s Cotai properties, causing the analyst to note that the company is “beginning to see early signs of increased mass market wallet share”. This is driven by foot traffic between The Venetian and The Parisian, as well as that between Cotai Central and Sands’ three properties on the west side of the Strip. Combined, the volume of this foot traffic is “many multiples of the volume of foot traffic between The Parisian and Studio City”, comments Govertsen, noting the same results for City of Dreams.
Business
Macau Legend appoints new CFO Macau Legend Development Limited appointed Wong Man Cheung as its Executive Vice President, Chief Financial Officer (CFO) and Company Secretary, with effect from yesterday, the company announced in a filing with the Hong Kong Stock Exchange yesterday. Mr. Wong has also been appointed as the alternative authorised representative of the company to Carl Tong Ka Wing.
Former CFO Mr. Yuen Chin Yau Laurence has resigned the posts. The filing states that Mr. Yuen has confirmed that he has no disagreement with the board and that there is no matter in relation to his resignation that needs to be brought to the attention of the shareholders of the company or Stock Exchange. The newly-appointed CFO, aged 44, has over twenty years of
experience, chiefly in accounting, auditing, corporate finance, treasury, business and financial controlling, financial advisory and corporate governance. Before joining Macau Legend, Mr. Wong was the head of finance, company secretary and authorised representative of Sunevision Holdings Ltd. from 2015 to 2016. The company is a subsidiary of Sun Hung Kai Properties Limited. C.U.
“The combination of SCL (Sands China Limited) assets on Cotai will result in the company extracting a greater wallet share of visitors to Cotai than before”, he writes in the report. Noting that in the near future the four properties will be connected without exterior walkways, with “no need to set foot outside”, the analyst predicts that The Venetian and The Parisian will gain most from this interconnection, while the effect on Sands properties on the Strip will be to ratchet up wallet share of base mass customers even further. Govertsen predicts a 20 per cent growth in gross gaming revenue for mass and slots in 2017 vis-a-vis predictions for the market as a whole of 11 per cent.
“The combination of Sands China Limited assets on Cotai will result in the company extracting a greater wallet share of visitors to Cotai than before” Grant Govertsen, analyst at Union Gaming
Headwind
Despite its location directly next to Studio City, and a visible “greater volume of people walking to Studio City now that Parisian is open”, the analyst has noticed a “more troubling trend” based on observations, in which more people walked to The Parisian from Studio City than from Studio City to The Parisian. This “net migration towards Parisian” causes the analyst to opine that The Parisian seems to be significantly more compelling than Studio City from a mass market consumer perspective and if the trend continues “ The Parisian could prove less of a benefit and more of a headwind for Studio City”. The analyst opines that overall for the whole of 2016 and 2017 for The Parisian property predictions are above consensus for its EBITDA (earnings before interest, taxation, depreciation and amortization), modelling EBITDA of HK$16.4 billion [US$2.11 billion] for 2016 and HK$19.4 billion for 2017. Current consensus is at HK$15.8 billion and HK$17.8 billion for 2016 and 2017, respectively, notes the analyst.
Business Daily Tuesday, September 20 2016 7
Gaming Gaming Philippine casino mogul pushing ahead US$418 mln resort in Manila
Billionaire Razon plans casino amid Duterte’s gambling crackdown Manila is aspiring to become the next Asian casino hub as high-stakes Chinese gamblers increasingly abandon Macau amid crackdown on corruption.
P
hilippine casino mogul Enrique Razon is pushing ahead with plans to build a 20 billion peso (US$418 million) resort in Manila, undeterred by President Rodrigo Duterte’s crackdown on gambling. The chairman and founder of Bloomberry Resorts Corp. said construction of the company’s second casino, in Quezon City in the northern part of metropolitan Manila, may start mid-next year and could be finished in 2019. Duterte’s campaign is focused on electronic gaming parlors that have been loosely regulated and could actually help companies like Bloomberry, Razon said in an interview in Manila on Friday. “I think cracking down on this, looking at it from our perspective, helps the licensed casinos,” Razon said. Bloomberry’s Solaire Resort and Casino on Manila Bay is operating at “full capacity” and there’s been an increase in visitors from China since Duterte was elected in May as the new president seeks to improve relations between
the two countries, he said. Manila is aspiring to become the next Asian casino hub as high-stakes Chinese gamblers increasingly abandon Macau amid their government’s crackdown on corruption. Chinese and South Koreans are the two biggest groups of foreign visitors at Solaire, and Duterte’s plans to upgrade the airport and open a new toll road to the area where Solaire is should be good for business, the billionaire said.
in the first half to a record from a year earlier, while net income swung to a profit from a loss. The company’s share price surged 52 per cent this year through July 11 before declining 23 per cent as Philippine stocks retreated amid high valuations and a broader emerging-market selloff. Bloomberry shares rose 4.3 per cent as of 10:29 a.m. in Manila, compared with a 0.4 per cent decline in the Philippine Stock Exchange Index. Total gaming revenue in the nation rose 24 per cent in the first half of 2016 from a year earlier, according to data from the industry regulator. Razon is opting to expand
Tourism bet
“Razon is making a bet that President Duterte will deliver on his promises on infrastructure,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “Tourism has far more to go if only we have the right infrastructure.” Tourist arrivals rose 14 per cent to 2.98 million in the first six months of 2016 from a year earlier, with South Korea, U.S. and China the three largest sources, government data show. Bloomberry’s gross gaming revenues climbed 17 per cent
Enrique Razon
domestically after dropping a bid for a gaming license in Cyprus and as he pulls out of a casino investment in South Korea. Local volumes have grown “quite strongly” and this trend should continue due to the attractiveness of the local economy and rising tourist numbers, he said. Quezon City has the biggest population of the 17 jurisdictions that make up metro Manila. “This expansion will give Razon two properties that he can position for specific markets,” said Rommel Rodrigo, a gaming analyst at Maybank ATR Kim Eng in Manila. “Solaire will probably focus on foreigners and
higher-end individuals, while this expansion could be more for locals.”
New casinos
The gambling tycoon, who has a net worth of US$3 billion, according to the Bloomberg Billionaires Index, banned 18 Chinese gamblers from Solaire in June over their involvement in a $81 million cyber-heist from Bangladesh’s central bank. The audacious theft put the spotlight on the Southeast Asian nation after it was revealed the money had been routed through a Philippines’ bank and then to local casinos. Duterte, who took office June 30, has vowed to “destroy” online gambling. The campaign has already harmed Roberto Ongpin and his company PhilWeb Corp., a gaming technology provider that saw its shares plummet after it lost a contract to supply the industry regulator and Duterte said Ongpin was among businessmen that have an undue influence on the government. Razon’s planned resort will also include shops, a convention center and a hotel. He joins other investors building new casinos in the Philippines, including Universal Entertainment Corp. Chairman Kazuo Okada, who will open a resort in Manila in November, and Andrew Tan and Lim Kok Thay, Philippine and Malaysian billionaires, who are also building a casino in the city. Bloomberg
8 Business Daily Tuesday, September 20 2016
Greater China Dividend draw
Mainland banks shares outperform in Hong Kong Investment flows from the mainland to Hong Kong accelerated sharply partly on optimism over the upcoming launch of the Shenzhen-Hong Kong stock scheme. Saikat Chatterjee and Samuel Shen
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ainland C h i n e s e investors are snapping up the shares of Chinese banks listed in Hong Kong for their high dividend and low valuations, putting aside concerns for now over rising bad debts as China’s economy slows. The rush into China’s banks has coincided with a pick-up in flows via a cross border stock link, but analysts and traders say banks are outperforming as mainland investors shift away from volatile growth stocks to dividend plays. Investors buying Hong Kong-listed shares, or H-shares, of the major commercial banks have narrowed the valuation gap between stocks that trade on both bourses to a 21-month low, as measured by an index that tracks dual-listed stocks. Industrial and Commercial Bank of China’s (ICBC) shares have risen more than 4 per cent relative to the Hang Seng Index, and Agricultural Bank of China (AgBank) over 8 per cent, since end-July. “In Hong Kong, there are many stocks with relatively higher yields, lower valuations, and relatively sound balance sheets,” said Lu Wenjie, a strategist at UBS.
“They’re attractive to Chinese investors in terms of allocations due to yuan depreciation pressures and low bond yields at home,” Lu said. Foreign investors have long steered clear of China’s biggest banks because of concerns over the broader economy, which means that H-shares have been
trading at steep discounts to their mainland counterparts. The Hong Kong-listed banks are thus good value, especially for their dividends of nearly 6 per cent. Th e Bi g F o u r - I CBC, Chi n a Construction Bank (CCB), Bank of China and AgBank have an average price to book of 0.84 compared with 1.2 times for the broader Hong Kong market, according to Thomson Reuters data. The banks offer an average dividend yield of 5.6 per cent compared with 2.1 per cent for Shanghai-listed stocks and around 3.4 per cent for 5-year China
AAA corporate debt. According to JP Morgan only 18 stocks listed in Shanghai and Shenzhen offer a dividend of more than 5 per cent. And while banks’ bad debts have risen, investors say there are signs Beijing is stepping in to help with recapitalisation. “Investors had been too negative on China’s bad debt problem and felt that poor loan quality could lead to systematic failure, however, recent economic data show that there is progress in the underlying economy due to the government’s effort on supply side reforms and industry restructuring,” said Pauline Dan, head of Greater China equities at Pictet Asset Management.
Flows pick up
Over the last two months, stock investment flows from the mainland
Stimuli stance
Beijing seen keeping its deep pockets open to prop up growth China’s government traditionally accumulates revenue early in the year, then splurges late in the year. China is seen keeping its deep pockets open in the second half and through 2017, despite having front-loaded spending earlier this year, as fiscal policy takes over from broad monetary easing as the major prop to growth. The central government’s fiscal deficit will surpass the target of 3 per cent of gross domestic product set for 2016, according to economists surveyed by Bloomberg News. The broader shortfall that wraps in revenues from land sales, policy banks and other channels will also sink deeper into the red. Here’s a snapshot of what the survey
of 18 economists conducted September 9 to 13 shows. 17 expect this year’s budget deficit will be deeper than the government forecast, with nine forecasting 3.6 to 4 per cent and four projecting above 4 per cent 16 expect the broader augmented fiscal deficit will be 10 per cent of GDP or more 16 expect a higher fiscal deficit next year too, with nine forecasting 3.5 to 3.9 per cent, 6 seeing 3.1 to 3.4 per cent, and one expecting 4 to 4.5 per cent of GDP The fiscal tap is seen remaining well and truly open, in part to compensate for
an on-hold monetary stance as policy makers shift from all out stimulus to reigning in asset bubbles. Better-thanexpected lending and money supply data for August show the economy has bottomed in its “L-shaped” recovery, a central bank newspaper said in a front-page commentary on Monday. “The Chinese authorities have become more cautious with regard to monetary policy, given the prevailing issues around capital flows and exchange rate uncertainty,” said Arjen van Dijkhuizen, senior economist at ABN Amro Bank NV in Amsterdam. “The shift in focus from monetary to fiscal stimulus is in line with the policy recommendations of G20, which China is chairing this year.” The latest budget numbers set the pattern: Fiscal expenditure jumped 10.3 per cent in August from a year earlier, while revenue rose just 1.7 per cent. The economy has stabilized on the back of such support, with factory output, investment and retail sales all exceeding
economist estimates last month. China’s government traditionally accumulates revenue early in the year, then splurges late in the year. In 2016, it has already spent 594 billion yuan more than it reaped in the first eight months of this year, according to Bloomberg calculations. Yet the official central budget is just the tip of the iceberg. The International Monetary Fund estimates China’s augmented fiscal deficit at 10.1 per cent of GDP this year. That stealth ammunition includes money channelled to its policy lenders, who have amassed at least 2 trillion yuan (almost US$300 billion) in new financing for lending this year. The economy is also getting a boost from land sales as the property boom helps local authorities’ fund infrastructure projects. They’re also issuing bonds to repay costlier bank credit and finance new expenditure. That support will also come with a cost.
Business Daily Tuesday, September 20 2016 9
Greater China In Brief to Hong Kong accelerated sharply, partly on optimism over the upcoming launch of the Shenzhen-Hong Kong stock scheme. Southbound flows pushed the daily aggregate quota on the Shanghai-Hong Kong link to its near limit before the ceiling was scrapped last month. Despite the recent surge in Chinese bank shares not everyone is bullish on the sector.
Reform
Government to invest in modernising agriculture The Agricultural Development Bank of China, one of the country’s main policy lenders, agreed to loan at least 3 trillion yuan (US$450 billion) by 2020 for the modernisation of China’s agriculture industry, state media said yesterday. The Ministry of Agriculture and the bank, which lends in line with government policy, signed an agreement to protect national food security, support the sector doing business overseas and develop China’s seed industry, according to the official Xinhua news agency. It was not immediately clear whether this commitment is separate from the bank’s plan to lend 3 trillion yuan for poverty reduction.
Key Points Hong Kong-listed Chinese banks pay comparatively high dividends Demand for China banks boosted by cross border flows Yuan fall, low bond yields boost popularity of bank shares
Sophie Jiang, banking analyst at Nomura, expects NPL ratios may continue to climb from now till 2018 as a slowing economy exerts pressure on margins and loans and weaker lenders need to replenish capital. Banks’ non-performing loan ratio is at an 11-year high, or nearly 2 per cent of total loans, according to China’s banking regulator, but many analysts believe the problem is far bigger than meets the eye as banks are slow to recognise bad loans or park them off balance sheets. Ratings agency Moody’s Investors Service has noted the sector’s continued weak performance while more medium-tier banks grapple with volatile market conditions. “We are cautious on the China banks space because we think the bad debts problem is still a concern especially with the economic slowdown,” said Lilian Leung, manager of the JP Morgan China Income Fund. Reuters
“The expansionary fiscal policy will be increasingly unsustainable over the medium term as the government’s spending ability will face constraints from sluggish revenue growth and a high level of debt,” Tong Yiling, an analyst at BMI Research, wrote in a report last week. “Beijing’s continued backing of infrastructure projects has the potential to stimulate demand for steel, cement and other construction materials, which would discourage producers from cutting capacity.”
“The Chinese authorities have become more cautious with regard to monetary policy, given the prevailing issues around capital flows and exchange rate uncertainty” Arjen van Dijkhuizen, senior economist at ABN Amro Bank To be sure, some economists expect some moderation. Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, expects fiscal support to be “slightly less forceful” in the second half of the year. The hope is there’ll be less off-budget and opaque stimulus, and an expansion of the official deficit, which is more transparent and subject to scrutiny. “To make fiscal policy more sustainable, China needs to gradually reduce the augmented fiscal deficit while increasing the budgeted deficit,” Zhu said. “That’s our forecast, and that’s also what we hope the nation will do.” Bloomberg News
Real estate
Big city home prices surge Official data showed that mortgage loans remained the major driver of China’s overall loan growth China’s boomtown of Shenzhen unexpectedly lost its top-performer spot in August’s home price race, but alongside other big cities still drove rapid property price growth. Shenzhen saw home prices rise 36.8 per cent from a year ago, versus 40.9 per cent in July. Its growth compared with the average new home price in 70 major cities climbing an annual 9.2 per cent, up from 7.9 per cent in July, National Statistics Bureau (NBS) data showed yesterday.
Key Points August new home prices +9.2 pct y/y vs July +7.9 pct First and second-tier city price growth quickens from July Shenzhen prices +36.8 pct y/y, slowing from July Xiamen prices +43.8 pct to become top performer The same data showed 64 of 70 major cities tracked by the NBS notched yearon-year price gains, up from 51 in July. “Sharp price gains were propped up by just a few overheated cities, mainly the four first-tier cities, namely Beijing, Shanghai, Guangzhou, and Shenzhen,” said Rosealea Yao, an economist at Gavekal Dragonomics, noting that severe supply and demand imbalances were behind the price rise. Shenzhen, China’s tech hub bordering Hong Kong, has been the top performer since April 2015, and analysts say its slowing but still spectacular property price growth over August might be due to its high base - with values nowhere near their peak. Yao warned that prices had ballooned to “unsustainable levels”, and that ample credit liquidity and relatively relaxed property policies would continue to drive up prices. “ F o rt y -s ev e n ci ti es i m p o s e d restrictions on home prices a few years ago when we saw similar price surges, while only six cities have imposed restrictions so far in this round of price hikes,” Yao said, stressing that demand-side restrictions had proved to be futile so far. “Credit stimulus in the beginning of this year played a huge part in driving up prices. How to limit the liquidity in the market should be a primary concern for the government,” Yao said. Although Shenzhen, along with financial hub Shanghai, tightened downpayment requirements earlier this year, average new home prices
there jumped to more than US$10,000 per square metre last week and are nearly 80 per cent higher than last September. “Shenzhen is also the tech hub of China where many listed companies are headquartered, thus many people have secured funds from the stock markets and have the capital to invest in property,” said Zhang Yiping, macroeconomic analyst at China Merchants Securities. “ La n d s u p p l y i s sca rc e, a n d Shenzhen’s population is mainly young people, who have an urgent need to buy houses.” Shanghai and Beijing prices also rose significantly at 31.2 per cent and 23.5 per cent on-year, quickening from 27.3 per cent and 20.7 per cent in July. C h i n e s e p o l i c y m a k e r s h av e expressed concerns over mounting debts from an over-inflated property market of late, with the central bank’s chief economist urging more steps curb the flow of capital into the property market. Official data showed that mortgage loans remained the major driver of China’s overall loan growth, accounting for more than 70 per cent of bank loans in August. The rapid rise in property loans over the past few months has been a notable cause of concern among analysts. Prices in second- and third-tier cities are also rising sharply as the buying boom spills over, favouring more affluent second- and third-tier cities such as Xiamen and Nanjing. Th e c o a st a l c i t y o f X i a m e n outperformed long-time top performer Shenzhen and had the sharpest price spike, with prices surging 43.8 per cent from a year earlier, faster than the 39.2 per cent rise in July. The inland city of Hefei was the second-fastest growing market according to the survey, with prices rising an annual 40.3 per cent in August, versus a 33.8 per cent gain in July. In an effort to deter speculators and to cool prices, housing authorities from the eastern city of Hangzhou announced on Sunday that it would begin to restrict home purchases as of Sept. 19. Families which are not registered as residents and already own one or more houses in certain districts cannot purchase another home, either new or pre-owned. Despite signs of a broadening recovery, many smaller cities still have a large glut of unsold homes. Prices in the rustbelt city of Dandong, for example, recorded the biggest fall at 2.1 per cent, compared with 2.4 per cent in July. Reuters
M&A
Sunac to buy property assets from Legend Sunac China Holdings Ltd will buy property assets in mainland China for US$2.1 billion from Legend Holdings, in a deal that will see the parent of computer maker Lenovo exit the real estate development sector. The deal is also set to exacerbate Sunac’s debt-to-equity ratio, which stood at 221 per cent at the end of last year, the highest among its listed peers, according to Thomson Reuters data. Sunac will purchase 42 property projects in 16 cities including Beijing, Tianjin, Chongqing and Hangzhou, the companies said in a statement. The 13.8 billion yuan transaction is expected to be completed next year. Overcapacity
Authorities draw up restructuring plans for Bohai Steel Financial authorities in the city of Tianjin plan to convert a portion of debt-stricken Bohai Steel Group’s liabilities into bonds, according to rescue plans drawn up recently, the online financial magazine Caixin reported yesterday. Officials met on September 11 to discuss a comprehensive restructuring plan for the firm, which has liabilities of 192 billion yuan (US$28.78 billion) from 105 creditors. According to the plan, high-quality assets from Bohai Steel will be restructured to form a new company, which will take on 50 billion yuan of the total debt. Fundraising
Alibaba’s Cainiao to raise more money Cainiao Network, the logistics arm of Chinese e-commerce giant Alibaba Group Holding Ltd, will hold another round of fundraising but it is hoping that money raised in March will be sufficient for a year to 18 months. In its first round of funding this year, Cainiao attracted investors such as Singapore’s Temasek Holdings and GIC Pte Ltd, Malaysia’s Khazanah Nasional Bhd, and China’s Primavera Capital. Business news magazine Caixin reported that the value of the round was close to 50 billion yuan (US$7.5 billion).
10 Business Daily Tuesday, September 20 2016
Greater China
Leverage remedy
Central bank sees some success in cutting interbank lending risk The use of repos is critical for many bank operations, but the central bank is concerned that many banks are using them to help fund trading strategies that contain too many layers of borrowing. Nathaniel Taplin
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hina’s central bank can take some measure of success from its attempts to force small banks to reduce their reliance on risky shortterm borrowing, but uncomfortable memories of a 2013 cash crunch that spooked global markets is keeping traders on edge.
Three years ago, the PBOC engineered a cash squeeze that saw some short-term rates spike as high as 30 per cent. Financial markets interpreted the manoeuvre as a PBOC warning to banks to curb risky lending practices, but the jump in rates also sparked fears of a banking crisis. Worried that banks are again too reliant on short-term loans,
the central bank has changed tack by forcing banks away from overnight and seven-day repurchase agreements (repos) and into 14-day and 28-day instruments, while at the same time injecting cash into the financial system to avoid a cash crunch. But the delicate balancing act still pushed the benchmark overnight lending rate up to 2.15 per cent on Wednesday, its highest level in more than a year. Other money market benchmarks, including the volume weighted average seven-day bond repo agreement rate, have also risen sharply. China’s markets were closed on Thursday and Friday for a public holiday. “It’s been incredibly tense these past few days,” said a moneymarket trader at a mid-sized Chinese commercial bank in Shanghai. The risk for small and mid-tier banks, which unlike big banks can’t rely on a large deposit base for funding, is that interbank funding exposes them to any market disruptions such as a sustained rise in interest rates, Moody’s Investors Service said. If the small banks are faced with a liquidity crisis, the problem would reverberate across a banking system already concerned with the highest level of non-performing loans since the global financial crisis and a deterioration in asset quality.
Success?
But half way through September, the volume of trade is running at a slower pace than in August, suggesting the PBOC’s measures have to a degree curbed banks’ appetite for short-term repos - a form of lending with an agreed repayment deadline and price. China Foreign Exchange Trading System figures show that 21.3 trillion yuan of one-day repos had been traded as of September 14, or about 40 per cent of the record high volume in August. The volume of seven-day repos was less than 40 per cent of the August figure. The use of repos is critical for many bank operations, but the central bank is concerned that many banks are using them to help fund trading strategies that contain too many layers of borrowing, or leverage. Typically, a bank money manager can boost returns by using deposits invested in the bank’s wealth management products to buy bonds. They would then use those bonds as collateral to raise short-term funds from the repo market, which in turn are used to buy more bonds. In theory, this cycle can continue but the tactic is fraught with risk. As long as bond prices keep rising, the banks can profit before the repos fall due and provide the returns that attract investors to deposit funds in the wealth management products.
Since the middle of this year, China’s bond market has been rallying, so the practice has largely paid off but the central bank’s money-market intervention is a sign that it is worried a bond market bubble could be forming, traders said. It has clamped down as the broader economy appears to be levelling off following worries earlier this year that economic expansion was slipping too quickly. “As (economic) growth has stabilised, it appears that Chinese authorities have turned the focus to ‘risk control,’” Zhou Hao, senior emerging markets economist at Commerzbank wrote in a research note.
Key Points Demand for 1-day and 7-day repurchase agreements slows down Follows central bank intervention in money markets PBOC concerned banks too reliant on short-term borrowing Raises memories of 2013 when short-term rates spiked “However, from the Chinese authorities’ perspective, it will be also dangerous to conduct a rapid deleveraging in the bond market if the central bank raises the funding costs sharply. This is where we can expect some volatility in the coming months.” Rates this time around remain far below where they were in 2013, but the scale of outstanding debts in China’s nebulous wealth management sector, a portion of which relies on money market leverage to boost returns, is also larger now, and bank profits and margins are weaker.
How to prick a bubble
Critically, analysts say, the portion of repo leverage that has made its way into the bond market is not clear. During a similar leverage scare in late 2015, wealth management sources told Reuters they were offering bond market products featuring leverage as high as 400 per cent. This time around the worries are centred on the much larger interbank market rather than the smaller exchange traded bond market, another reason the run-up has drawn policymaker concern. With capital outflows rising again and the real extent of bond market leverage unclear, analysts say market participants should be prepared for a bumpy ride. “Investors should remember that the Chinese authorities attempts to reduce leverage in the stock market in 2015 ended disastrously,” Commerzbank’s Zhou said in the note. “Let’s hope some lessons have been learned and that the authorities tread softly.” Reuters
Business Daily Tuesday, September 20 2016 11
Asia Cheap funding
Japanese companies issue record amount of debt Most firms are raising funds to rollover or repay debt more cheaply. Lisa Twaronite and Hiroko Yoneda
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apanese companies have sold a record amount of bonds this quarter, taking advantage of negative interest rates and yieldstarved investors to lock in cheap long-term funding. For the July-September quarter, Japanese companies are on track to issue over 4 trillion yen (US$39.20 billion) in bonds, more than double the 1.5 trillion yen booked in the same period last year, according to data from DealWatch and Thomson Reuters. Strikingly, 1.83 trillion yen of the debt is in maturities of more than 20 years, versus just 70 billion yen in the same period last year. The surge comes after the Bank of Japan adopted negative interest rates in February as part of its stimulus measures. Tokyu Corp sold 10 billion yen of 20-year bonds and 10 billion yen of 30-year bonds on Friday, following a spate of issues from big names such as Softbank Group Corp and Mitsubishi Corp. “I’ve never seen this kind of volume in the past,” said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo. Some companies have issued superlong notes to invest in new plant and equipment, which would stimulate economic growth and highlight what low and negative interest rates
are supposed to achieve. But most are raising funds to rollover or repay debt more cheaply. Pharmaceutical firm Daiichi Sankyo Co issued 100 billion yen of 20and 30-year bonds in July, of which 30 billion yen will be used to buy back its own shares, while Aisin Seiki issued 10 billion in 20-year notes last week for the same purpose. “Some others might be interested
in doing this - buying back shares, and issuing straight bonds. But they might not say this is what they will use the proceeds for,” said Eiichiro Tani, director, credit trading at Daiwa Securities in Tokyo. While a boon to companies, the BOJ’s negative rate policy has created a dilemma for Japanese fixed income investors. “In order to get positive yields, we have to choose between taking on more credit risk, and buying lower-rated issues, or more duration risk, and buying higher-rated bonds
with longer maturities,” said a chief portfolio manager of a Tokyo-based fixed-income fund. The surge in super long issuance has paused for now as long-term bond yields have surged. The 30-year JGB yield hit a six-month high of 0.605 per cent on Wednesday, up from a record low of 0.015 per cent in July.
Key Points Corporate bond issuance on track for record quarter Percentage of longer maturities surges on year Recent JGB steepening trend could lead to slowdown Rising yields, which makes borrowing more expensive, are driven by market expectations that the BOJ might try to steepen the yield curve at its policy meeting on Wednesday, possibly by tapering its purchases of longer-term debt and buying more short-term paper. The central banks may also shift its prime policy focus to interest rates from base money now, the sources said. Daiwa’s Tani said that while the best time for issuers had probably passed, companies would likely return to the market once uncertainty over the BOJ’s policy had passed. “I think the corporate bond market will remain active. The yield curve may be steepening now, but investors are hungry for yield and I expect to see a cycle back to flattening once the BOJ’s intention has been clarified,” said Takuji Okubo, chief economist at Japan Macro Advisors. “I think there are on-going demands from corporates to lock in low yields.” Okubo said. Reuters
Investment
Australia to update trade policy in wake of Ausgrid row Trade Minister is visiting Hong Kong after the government blocked bids last month from Cheung Kong Infrastructure Holdings Ltd. Australia said yesterday it plans to update its foreign investment policy to ensure a level playing field for all countries, after it was criticised for rejecting bids from China and Hong Kong for a A$10 billion (US$7.5 billion) energy grid.
“The policy will ensure that Australia’s approach to foreign investment is non-discriminatory between nation-states” Ethan Edwards, The Searchers Notes for a speech to be delivered by Australian Trade Minister Steven Ciobo at a Hong Kong investor conference later yesterday show he
plans to say the government will “have more to say soon” on its foreign investment policy for critical infrastructure. “The policy will ensure that Australia’s approach to foreign investment is non-discriminatory between nation-states, proportionate to the risks involved (and) supportive of continued foreign investment and Australia’s reputation as a foreign investment destination,” the speech notes said without giving further details. The minister’s comments appear to be at odds with remarks from a source within the Ausgrid sale process who has said North American bidders will be allowed to make offers without partnering with an Australian entity. Ciobo is visiting Hong Kong after the government blocked bids last month from Cheung Kong Infrastructure Holdings Ltd (CKI), one of Hong Kong’s biggest listed companies, and the Chinese government’s State Grid Corp of China for a half share in Ausgrid, Australia’s biggest power network.
Rebuffing those bids, Australia cited unspecified security concerns. But China’s commerce ministry reacted angrily, saying the move was protectionist, and warned that it “seriously impacts the willingness of Chinese companies to invest in Australia”. Ciobo’s speech notes didn’t discuss the State Grid bid but showed that he will say CKI has invested in Australian energy utilities for nearly 20 years and is considered a trusted member of the business community
Australia’s decision not to sell Ausgrid to a company as reputable as CKI “underscores that the Ausgrid decision pertains to the asset itself, not to the potential owners”, the speech notes said. Ausgrid supplies power and communications services to business and government. “The national security concerns relate to the transaction structure and the nature of the assets, not to any particular investor,” the notes said. Reuters
Cheung Kong Infrastructure Holdings logo behind its owner Li Ka-shing
12 Business Daily Tuesday, September 20 2016
Asia Deflation fight
Bank of Japan may shift policy focus to rates The challenge for the central bank will be how to back away from QQE without scaring investors into a stampede out of government bonds. Leika Kihara
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he Bank of Japan (BOJ) could shift negative interest rates to the primary focus of its monetary policy on Wednesday, heightening market disquiet over what any move away from quantitative easing reveals about the waning firepower of global central banks. With three years of massive money printing failing to push up inflation, the BOJ is expected to move away from shock therapy and towards a protracted battle against deflation, say sources familiar with its thinking. The BOJ’s “quantitative and qualitative easing” (QQE) has been a signature policy of Governor Haruhiko Kuroda since 2013 that aimed to shock the economy out of stagnation and change households’ deflationary mind-sets. While the central bank is unlikely to ditch QQE completely, altering its emphasis would herald an end to the “shock and awe” approach that made Kuroda’s policies unique compared with the gradualist approach preferred by his predecessors. A less aggressive approach would also come as a world of tame growth and low inflation force the U.S. Federal Reserve to go slow on raising interest rates and the European Central Bank to concede the limits of what monetary policy alone can achieve. Policymakers got a taste of how markets might react last week when investors dumped longer-dated bonds on fears the BOJ would slow its purchasing pace. Super-long Japanese government bond yields have rocketed since the BOJ announced at its July
28-29 meeting its plan to conduct the comprehensive assessment in September. The 20-year JGB yield, which hovered around 0.125 per cent on July 29, hit a six-month high of 0.495 per cent on September 14. The 30-year JGB yield, which hovered around 0.260 per cent on July 29, also hit a six-month high of 0.585 per cent on September 14. The challenge for the BOJ will be how to back away from QQE without scaring investors into a stampede out of government bonds. “The BOJ insists that it still has many tools available. But the costs of using these tools are rising and the benefits are diminishing, especially for its huge asset purchases,” said Izuru Kato, chief economist at Totan Research.
“Deepening negative rates has enormous costs too but practically, that’s probably the only usable tool left.” The BOJ will debate the changes when it conducts a comprehensive assessment of its policies at a rate review on September 20-21, the same days as this week’s Fed policy meeting.
Admitting defeat?
Under QQE, the BOJ has been increasing base money - or the amount of money it prints - at an annual pace of 80 trillion yen (US$783 billion). Analysts say the BOJ will struggle to buy enough bonds in coming years with its huge purchases draining liquidity. Sources have told Reuters the BOJ will shift its prime policy target to the 0.1 per cent negative rate it charges on a portion of excess reserves financial institutions park with the central bank that was introduced in February.
Wary of a flattening yield curve that risks impairing financial intermediation, it will also seek ways to steepen the curve such as making its bond buying more flexible. But the BOJ must manage any such shift without giving markets the impression it could withdraw its massive stimulus. Sources say the board may consider deepening negative rates to show its determination to maintain an ultraeasy policy bias, though analysts doubt whether a deepening could do much to boost growth.
Key Points BOJ seen shifting policy focus to rates from base money Board split on fate of base money target BOJ may debate deepening negative rates - sources 2-day mtg ends Sept 21; decision seen 0400-0530 GMT Governor Kuroda likely to brief media from 0630 GMT “Any such move won’t have much positive effect on the economy,” said Yasuhide Yajima, chief economist at NLI Research Institute. “Unless the BOJ accompanies rate cuts with increased asset purchases, it won’t help weaken the yen much either.” Kuroda must also muster consensus from a fragmented board, where even those who favour more easing are divided over the most effective method. Some want to shift to a rate target, but others want to keep focusing on expanding asset purchases. “Kuroda created QQE, so it’s his symbol. Making big changes to that would be admitting defeat,” one of the sources said. “I wonder whether that’s possible while Kuroda is governor.” Reuters
Environmental crackdown
Philippines may suspend at least 10 more mines Environment and Natural Resources Secretary Regina Lopez said more mines could be suspended after releasing the results of a mining audit on Thursday. Manolo Serapio Jr
The Philippines could suspend at least 10 more mines under an environmental crackdown on the sector, the minister in charge of mining said, in a move that threatens to halt the operations of half the mines in the world’s top supplier of nickel ore. President Rodrigo Duterte has taken a tough line on the industry and warned the nation could survive without mining, while mineral producers have labelled a review of the sector a “demolition campaign”. The Southeast Asian nation has already halted the operations of 10 mines, eight of them nickel producers, for environmental lapses since it launched an audit on July 8, sending global prices of the metal soaring. That has left 30 mines still operating, but Environment and Natural Resources Secretary Regina Lopez said more could be suspended when the agency releases the results of the mining audit on Thursday.
Asked if a further 10 or more mines could be suspended, Lopez said in a text message: “Yes possible.” “We are coming clean here. For decades we have turned a blind eye to the suffering of our people. Not anymore,” she said, adding that any
Key Points Manila has already halted 10 mines, 8 of them nickel producers Philippines is world’s top nickel ore supplier Govt to announce results of environmental audit this week
global nickel to a one-year high of US$11,030 a tonne on Aug. 10. Price have since eased, trading at just below US$10,000 yesterday, but remain up 10 per cent this year. The Philippines is the biggest supplier of nickel ore to China, where the metal is used to make stainless steel. The Southeast Asian country shipped 34 million tonnes to Beijing last year, while exports this year have dropped 27 per cent in January-July. Reuters Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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decision to halt mines would follow the law. Lopez, a committed environmentalist picked by Duterte to promote responsible mining, has said miners have to upgrade their operations to limit harm to the environment and local communities. “They just need to get their act together,” Lopez said in the text message. Past environmental disasters, including a 1996 tailings leak at a
copper mine in central Marinduque province that contaminated rivers, have spurred mining opponents in the Philippines led by the influential Catholic Church. Miners, however, have questioned the inclusion of anti-mining activists in the audit teams. The mine closures and the risk of more being shuttered had lifted
Business Daily Tuesday, September 20 2016 13
Asia Monetary policy
In Brief
New Zealand central bank tipped to hold rates Inflation has been below the central bank’s 1 per cent to 3 per cent target range since June 2014 and is currently at 0.4 per cent. New Zealand’s central bank is widely expected to keep interest rates on hold at a record low on Thursday but clearly signal more cuts to come as it looks to jump start inflation and bring down a high currency. A recent raft of positive data underscore the case to keep rates unchanged for now. The economy grew at the fastest quarterly pace in two years in the June quarter and there has been a solid rise in global dairy prices - New Zealand’s main export. Sixteen of 17 economists polled by Reuters expect the Reserve Bank of New Zealand to keep rates at 2.00 per cent at a review later this week, with only one expecting a 25 basis point rate cut. The market is pricing in only a 5 per cent chance of a cut. However, while easing doesn’t look
to be on the cards this week, tepid inflation and the high New Zealand dollar mean economists are expecting at least one more before the end of the year.
Key Points Economists expect RBNZ to keep rates on hold at 2.0 per cent Central bank expected to clearly signal more cuts in future Money markets see 5 per cent chance of a rate cut Policy announcement Sept 22 After that, they see rates remaining steady at 1.75 per cent, according to the median in the poll. The central bank has clearly
stated its current projections indicate “further policy easing will be required to ensure that future inflation settles near the middle of the target range.” It is expected to reiterate that sentiment on Thursday. “Inflation risks are still skewed to the downside. The New Zealand dollar has continued to appreciate since the August monetary policy statement and remains above the Bank’s TWI assumed levels, despite these being significantly revised upwards,” said ASB Chief Economist Nick Tuffley. Along with signalling more rate cuts, economists also agree the central bank will make every effort to jawbone the New Zealand dollar lower on Thursday. “In an attempt to prevent the anticipated unchanged interest rate decision from resulting in an undesirable appreciation in the NZ dollar, we expect the RBNZ to reaffirm their explicit easing bias, said First NZ Capital Research Analyst Chris Green. Reuters
Assets offload
Vietnam taps banks to advise on Vinamilk stake sale Vietnam has invited about half a dozen foreign investment banks to advise it on selling its stake in dairy producer Vinamilk, sources said, in one of the strongest signs yet of the government getting serious about offloading its most lucrative assets. Credit Suisse, HSBC, J.P. Morgan Chase, Nomura Holdings, and advisory firm Rothschild are among the firms that recently received requests from Vietnam’s government, several sources with direct knowledge of the matter told Reuters. The people were not authorized to speak to the media. Debt
Foreigners offload S. Korean bonds Foreign investors sold South Korean bonds in August but bought stocks for the third month in a row, official data showed yesterday. Foreign investors lowered their bond holdings by a net 917.0 billion won (US$819.35 million) in August, according to the Financial Supervisory Service (FSS), compared with inflows of 588.0 billion won in July. Investors in Europe boosted their holdings by 0.6 trillion won, but those in Asia and the Americas sold off a combined 1.8 trillion won worth of South Korean bonds in August. M&A
Australia’s Port of Melbourne sold
Reserve Bank of New Zealand headquarters
ASX
Glitch badly disrupts share trading on Australia’s stock exchange (Updates with market not reopening after 2nd trading halt) By Tom Westbrook SYDNEY, Sept 19 (Reuters) - Australia’s share market was badly disrupted on Monday by a technical snag that delayed the opening by 70 minutes and cut short the afternoon trading session by about 90 minutes. The shutdown is the most serious glitch for the Australian Securities Exchange since the bourse shut for four hours in October 2011, when it suffered a connectivity problem. The market also suspended trades for 30 minutes in February, due to a glitch. Monday’s woes “will cost the whole industry,” Mathan Somasundaram, a quant strategist at stockbroker Baillieu Holst said. “We have a lot of turnover on an average day and obviously all our advisors will lose that turnover over the day.” The ASX was the world’s ninth largest stock exchange as of 2011, according to World Stock Exchanges website. Bonds and futures also trade on the exchange, and their trading was not disrupted by Monday’s glitch. The benchmark S&P/ASX 200 index was flat at 5,294.8 points when the bourse announced that trading
would not resume. “All ASX Trade markets will not re-open for trading for trade date 19 September,” an ASX spokesman said in a statement emailed 15 minutes before the scheduled close. “Furthermore, there will be no closing single price auction.” “ASX will advise the process for determining closing prices, remaining session states and status of orders.” The market had been halted about 75 minutes earlier, just before 2.30
pm, when a technical glitch that delayed the open by more than hour resurfaced. The ASX’s normal operating hours are between 10 am and 4 pm local time, but on Monday pre-open trading did not begin until 11.10 am. In a statement on the morning snag, the ASX said the opening of the equities market was delayed “due to an issue with a component that allows ASX to manage individual stocks,” and that the problem had been resolved. Shares of ASX were down 1.4 percent when trading was halted for the second time.
The sale of Australia’s biggest general cargo terminal, Port of Melbourne, was awarded to a group led by QIC Private Capital for about A$9.7 billion (US$7.29 billion), the Victorian state government said yesterday. “We believe this investment brings significant diversification benefits for our clients as a landlord port with a well defined regulatory regime in a globally scarce infrastructure subsector,” QIC Global Infrastructure Head Ross Israel said in a statement released by the Victorian government. QIC is part of the Lonsdale Consortium, which won the 50-year lease of the port. Private survey
Indonesia’s palm output rising again Indonesia’s crude palm oil (CPO) output likely rose for a fourth straight month in August, according to a Reuters survey, continuing to recover as the impact from a drought fades. CPO production likely climbed 1 per cent to 2.833 million tonnes in August from 2.802 million tonnes in July, according to the median estimate in a survey of three industry associations, a state palm research firm and one of Indonesia’s largest planters. Indonesia is the world’s top producer of palm oil, used in everything from chocolate to cosmetics and biofuels.
14 Business Daily Tuesday, September 20 2016
International In Brief ECB’s Weidmann
UK to lose passporting rights unless in EEA Financial institutions based in Britain will lose so-called passporting rights allowing them to operate across the European Union unless post-Brexit Britain is at least part of the European Economic Area, ECB policymaker Jens Weidmann has said. “Passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area,” Weidmann was quoted as saying in an interview with Britain’s Guardian newspaper. Passporting rights are considered to be one of several important factors underlying the strength of the City of London financial district. Environment support
Canada will impose nationwide carbon price Canada will impose a carbon price on provinces that do not adequately regulate emissions by themselves, Environment Minister Catherine McKenna said on Sunday without giving details on how the Liberal government will do so. Speaking on the CTV broadcaster’s “Question Period,” a national politics talk show, McKenna said the new emissions regime will be in place sometime in October, before a federal-provincial meeting on the matter. She only said the government will have a “backstop” for provinces that do not comply, but did not address questions on penalties for defiance.
Russian election
Pro-Putin party wins landslide victory Near complete results showed turnout was around 48 per cent, down from nearly 60 per cent in 2011.
V
ladimir Putin’s political allies won a landslide victory in a parliamentary election in Russia, near final results showed yesterday, paving the way for Putin to run for a fourth term as president in 18 months if, as expected, he chooses to do so. The ruling United Russia party, founded by Putin almost 16 years ago after he first became president, was on track to win 343 seats or 76 per cent of 450 available seats in Russia’s Duma, the lower house of parliament, the Central Election Commission said, after 93 per cent of ballots had been counted. That is up from 238 seats in the last parliamentary election, in 2011, and would allow United Russia to change the constitution, although Putin can run again under the existing one as he was prime minister between his second and third terms.
Liberal opposition parties failed to win any seats, after holding just one before. Not everything went Putin’s way though. Near complete results showed turnout was around 48 per cent, down from nearly 60 per cent in 2011, suggesting apathy among some Russians and a softening of enthusiasm for the ruling elite. Putin, speaking to United Russia campaign staff a few minutes after polling stations closed on Sunday night, said the win showed voters still trusted the leadership despite an economic slowdown made worse by Western sanctions over Ukraine. “We can say with certainty that the party has achieved a very good result; it’s won,” Putin said at the United Russia headquarters, where he arrived together with his ally, Dmitry Medvedev, who is prime minister and the party’s leader.
Russian President Vladimir Putin (R) and Prime Minister Dmitry Medvedev (L) visit the electoral staff of United Russia party after the parliamentary elections in Moscow. Lusa
Alluding to the spluttering economy, which is forecast to shrink this year by at least 0.3 per cent, Putin said: “We know that life is hard for people, there are lots of problems, lots of unresolved problems. Nevertheless, we have this result.” Putin’s aides are likely to use the result as a springboard for his own re-election campaign, though he has not yet confirmed he will seek another term. Other parties trailed far behind United Russia. According to the near complete official vote count, the Communists were on track to come second with 42 seats, the populist LDPR party third with 41, and the left-of-centre Just Russia party fourth with 21 seats. All three of those parties tend to vote with United Russia on crunch issues in parliament and avoid direct criticism of Putin. After the last election, in 2011, anger at ballot-rigging prompted large protests in Moscow, and the Kremlin will be anxious to avoid a repetition of that. The return of an old voting system, under which half, rather than all, deputies were drawn from party lists with the other half decided by people voting for individuals, appeared to benefit United Russia. Near final results showed it won 140 votes under the list system and 203 seats from the constituency system. Putin has said it is too early to say if he will go for what would be a fourth presidential term in 2018. Liberal opposition politicians, the only group openly critical of Putin, failed to get over the five per cent threshold needed for party representation in the Duma, near final results showed. Reuters
Monetary drive
Currencies to politics bedevil African central banks’ task
Oil industry
Venezuela says OPEC, non-OPEC deal close Venezuelan President Nicolas Maduro said on Sunday that OPEC and non-OPEC countries were close to reaching a deal to stabilize oil markets and that he aimed for a deal to be announced this month. OPEC members may call an extraordinary meeting to discuss oil prices if they reach consensus at an informal gathering in Algiers this month, OPEC SecretaryGeneral Mohammed Barkindo said during a visit to Algeria, the country’s state news agency, APS, reported on Sunday. Maduro said a deal was imminent. Fiscal investigation
EU probes French gas giant tax deals The EU launched an in-depth probe yesterday into alleged sweetheart tax deals between French gas group Engie and Luxembourg, taking on a major European multinational after similar high-profile investigations into US giants. “The Commission has concerns that several tax rulings issued by Luxembourg may have given GDF Suez (now Engie) an unfair advantage over other companies, in breach of EU state aid rules,” the European Union’s executive arm said in a statement. The probe comes days after the Commission angered Washington with a ruling that Apple had received favourable tax terms in Ireland.
Under normal circumstances the timing and direction of the U.S. Federal Reserve’s policy decisions would weigh heavily on the decision-making of central banks in countries dependent on foreign capital inflows and imports. Domestic factors could, however, play a greater role this week. Africa’s major economies are taking diverging approaches to monetary policy as they struggle to cope with volatile currencies, slumping growth and political meddling. Ghana, Kenya, Nigeria and South Africa are set to announce interestrate decisions this week in an environment marked by accelerating price growth and an economic slump in some countries and attempts by politicians to prescribe policy in others. While Nigeria’s central bank will probably take more aggressive action, South Africa, Kenya and Ghana are set to keep rates on hold, according to the median estimates of separate Bloomberg surveys. The contrasting approaches underscore the difficult policy choices facing African central banks as a slump in commodity prices and sluggish global demand continue to weigh on raw material exporters, like South Africa and Nigeria, the continent’s two largest economies. Political pressure is also mounting as Ghana and Kenya prepare for elections in the next 12 months and infighting in South Africa’s government and ruling party escalates.
December election
While inflation in Ghana, the world’s second biggest cocoa producer, quickened to 16.9 per cent in August, the rate has come down from the 19.2 per cent record in March.
The pledge by the government of President John Dramani Mahama, who will contest for a second term in office in a December vote, to increase public-sector salaries by 12.5 per cent from January is likely to make the Bank of Ghana hesitant about monetary easing, Mark Bohlund, an economist at Bloomberg Intelligence in London, said in a note.
“Internal dynamics, I think, will influence the monetary policy direction more so than what’s happening externally” Yvonne Mhango, economist at Renaissance Capital Ltd. in Johannesburg
Politics could weigh on the Kenyan central bank’s decision-making today even as the shilling has been relatively stable against the dollar this year, helping to keep inflation inside the bank’s 2.5 per cent to 7.5 per cent target band. President Uhuru
Kenyatta, who will run for a second term in August elections, has signed a law capping commercial lending rates.
Political turmoil
While the South African Reserve Bank’s independence is enshrined in the nation’s constitution, senior ANC politicians recently suggested the regulator should help support the rand and that its authority to issue banking licenses must be revoked. Political turmoil, including reports that Finance Minister Pravin Gordhan may be arrested and infighting in the ruling party, has led to a renewed slump the nation’s bonds and currency, which the central bank says is a key risk to the outlook for price growth. The Monetary Policy Committee has raised its benchmark repurchase rate by 125 basis points to 7 per cent since last July and kept it unchanged at its past two meetings to support an economy forecast to expand at the slowest pace since a 2009 recession this year. While inflation slowed to 6 per cent in July, the bank forecast it will only fall back into the 3 per cent to 6 per cent target range in the third quarter of next year. Nigeria’s Governor Godwin Emefiele, who will announce the central bank’s decision today, increased borrowing costs by 200 basis points to 14 per cent in July to attract foreign investment and help prop up a currency that’s lost almost 40 per cent against the dollar since the removal of a 197-199 per dollar peg in June. The lagged effects of the peg and the weak naira contributed to inflation accelerating to the highest rate in almost 11 years last month while the economy contracted yearon-year for second consecutive quarter in the three months through June. Bloomberg News
Business Daily Tuesday, September 20 2016 15
Opinion Business Wires
The Japan News Major business groups on Friday sent a letter to Japanese and European Union leaders calling for the conclusion of talks on a proposed Japan-EU economic partnership agreement by the yearend as targeted. “During times of uncertainty, our partnership based on the shared values is more important than ever,” the groups, including the Japan Business Federation, or Keidanren, and BusinessEurope, said in the letter to Prime Minister Shinzo Abe, European Council President Donald Tusk and European Commission President JeanClaude Juncker. Momentum for an early conclusion of the EPA seems to be gradually increasing.
Jakarta Globe The (Indonesian) government will soon require cattle importers to also import brood-stock by the end of the year in a latest attempt to recover the local cattle population. Indonesia’s cattle population has dropped in the last five years following an ill-advised government decision to tighten cattle imports based on its pursuit of beef self-sufficiency. The policy created beef shortages in the local market and spiked beef prices so high that local farmers were persuaded to butcher their brood-stock for a quick cash gain. The Agriculture Ministry tried to stem the trend by making it illegal to slaughter heifer or cows, but with no avail.
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Markets and pundits have a data-point fixation
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The Times of India Nearly 70,000 (Indian) workers were retrenched during the second quarter of 2015-16 due to sharp fall in merchandise exports, a report says. The joint study by Assocham and Thought Arbitrage noted that “sharp drop in merchandise exports mainly contributed to a loss of 70,000 jobs during the second quarter of 201516,” reinforcing a crucial point that the employment generation has to be led by the domestic demand. The textiles sector was most affected witnessing a massive drop in contractual employment as outward shipments shrank, it said.
The Phnom Penh Post Rice millers said they welcomed the prime minister’s announcement that the government would make over US$20 million in funds available shortly to support cash-strapped millers and prop up falling paddy prices. According to the Ministry of Economy and Finance, the average farm-gate price of paddy has plummeted from US$240 per tonne to US$192 per tonne over the past month as farmers short of capital and desperate to pay back debts sell off their paddy, even at a loss.
ata is the raw material we use as the basis for analysis. Investors demand it. Baseball fans love it. Quants live for it. Pollsters depend on it. Data is the difference between anecdote and evidence, between opinion and facts, between life and death (ask a surgeon or airline pilot). Data drives the economic world around us. It is how we understand complex, abstract things. You look at it to see how well your portfolio is doing (pretty good!), or to understand the state of the economy (better than expected!). Businesses use data to understand where they are growing. Investors use it to figure out if something is worth owning. It is how we judge athletic performance, measure academic achievement, evaluate companies, compare technologies and evaluate scientific progress. Yet people often seem to overlook the weaknesses in data. I see this often in the financial community and the use of data series, whether it’s the jobs numbers, housing prices or the consumer price index. The key here is the word “series” and how we perceive time. People tend to experience time as here and now, rather than as a continuum. The future is some distant, far-off event; the past is ancient history. Neither perspective is the correct way to give context to data in a time series. This is especially true for traders, who experience time in a tick-by-tick change in their profit and loss position. Why longterm economic data is so important to them is in the short-term shifts in volatility, not the actual data. This is a revealing dichotomy. Consider how often the average trader, economist, investor or analyst tends to see any data as a single event. They forget the series, the continuum mentioned above. Economic releases, earnings, valuations are best thought of as a film, not a photograph. Our language reveals that we don’t usually think about it that way. We refer to a “data point,” we think about an “economic snapshot,” we get an earnings “report.” The better way to understand the ebb and flow of the data is to recognize these are released as part of an on-going stream. And yet we succumb to what I call the “recency effect,” or the tendency to overemphasize the most recent information and underemphasize the longer-term series. Consider the payroll report. It is a very noisy bit of near real-time analysis, filled with normal inaccuracies and a huge margin of error. It is subject to large revisions. It is even more challenging in a post-credit crisis recovery. Any one report can be an outlier, and if you ignore the context of
“
Barry Ritholtz a Bloomberg View columnist
the series, you run the risk of overemphasizing statistical noise. Recall the May jobs report, a negative surprise that led to handwringing, predictions of an imminent recession and many forecasts that the Federal Reserve would keep rates lower for longer. All of which was promptly forgotten when the next month was a positive surprise. (Don’t say you weren’t warned). I have noticed the same sort of approach to the presidential elections. The daily news cycle requires a narrative, and each and every poll delivers one, regardless of its accuracy. Back when Republican Donald Trump was trailing by a significant margin in the polls, pundits were calling his campaign a “dumpster fire,” he was heading for a landslide loss, the Democrats were going to retake the Senate and the House. This story line was confirmed by a terrible August for him. Whoops. Then the race began tightening in September amid a series of missteps by Democrat Hillary Clinton. This terrified establishment Republicans and the #NeverTrump wing of the party, and reignited speculation on the fringes that Democrats were about to call for Vice President Joe Biden to step in as Clinton’s replacement. The data series paints a very different picture: In a nation with an electoral college, the national polls matter less than the aggregation of state polls and how they add up to the 270 electoral college votes needed to win the presidential race. The Democratic candidate starts out with an advantage because of geography and demographics, while the Republican candidate has tapped into anger and unhappiness. We still haven’t had any debates between the candidates yet. In a politically divided nation the election can easily go one way or another. Yet the media, and partisans on both sides of the aisle, alternatively gloat and panic over data noise. Is the emphasis on the latest outlier poll any different than the market’s monthly spasm in reaction to the jobs report? It is the same cognitive errors that drive both. For a baseball hitter in a slump, the longer-term data series is more meaningful that any single atbat. The same is true in politics, economic data, finance and markets. Investors too should pay more attention to the movie, and not any one snapshot. Bloomberg View
The better way to understand the ebb and flow of the data is to recognize these are released as part of an on-going stream.
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16 Business Daily Tuesday, September 20 2016
Closing Infrastructure
ADB loans big to support Mainland’s transportation projects
The Asian Development Bank (ADB) has issued US$17 billion worth of loans over the past 30 years to support 95 transportation projects in China, an ADB official said yesterday. The amount on transportation is more than half of ADB’s all loans to China, Robert Guild, director of the transport division of East Asia development of ADB, told a seminar marking the 30th anniversary of China-ADB cooperation. Fifty-five per cent of the loans were used for highways and roads, 27 per cent for railways and
the rest for urban transportation, ports and water transportation projects, said Guild. Zhang Dawei, a senior official with the Ministry of Transport (MOT), told the seminar that China was the second largest borrower from ADB worldwide. The loan effectively bridged the funding gap for transportation infrastructure in China and modernized the transportation sector, said Zhang. MOT data showed that China’s transportation network has reached 4.95 million kilometres by the end of 2015, with 19,000 km of high-speed railway and 124,000 km of expressway, both ranking first in the world. Xinhua
Physiology study
Are you interoceptive? Traders in tune with heartbeat make more The role of gut feelings in trading has been talked about, if not proven, for decades. Hugh Son
T
raders who are better at listening to the clues their bodies give them about market patterns make more money and survive longer in the industry, according to a study by former Goldman Sachs Group Inc. derivatives trader-turned-neuroscientist John Coates. Coates, whose 2012 book “The Hour Between Dog and Wolf” revealed how traders’ decisions are influenced by biology, wanted to find out whether gut feelings were valid signals or just noise. So, along with medical researchers at the University of Cambridge, he examined the physiology of 18 male high-frequency traders working at a London hedge fund. The results, published yesterday in online journal Scientific Reports, show risk-takers who more accurately estimated their own heart rates - a test for the inward-looking sense called interoception - made more money than those who were poor at the task. “We’ve known that the physiology is usually more accurate in representing the risk and opportunity in markets than people’s conscious assessments,” Coates, 54, said in an interview last week. “If there are such valuable trading signals in our bodily reactions, then is it possible that people who are better at sensing those physical changes are accessing
invaluable trading signals?” The role of gut feelings in trading has been talked about, if not proven, for decades. Billionaire hedge-fund investor George Soros is said to overhaul his portfolio when his backache flares up. Advances in our understanding of the connection between physiology and performance could help human traders remain relevant as machines take over more market-making and investing functions.
Counting heartbeats
The test subjects were asked to count their heartbeats, without feeling any pulse points, over random periods of time. The estimates were then matched with actual heart rates, said Coates. As it turns out, traders are better at the interoception test than the general population, with an average accuracy score in the study of 78.2 per cent, compared with 66.9 per cent for a control group made up of Cambridge students. Then, using traders’ profit-and-loss statements, Coates and his colleagues found that those with higher sensitivity made more money in the past year. Most surprising to Coates, who spent 12 years trading derivatives for Goldman Sachs, Merrill Lynch & Co. and Deutsche Bank AG, is that the longer subjects have been working, the more accurate they were. While traders with less than four years experience scored 68.7 per cent, those who had been working at least 8 years
Environment
scored 85.3 per cent. “It’s incredible that the market might be selecting for this,” Coates said. “There’s this really powerful advantage in the market, and nobody knows about it.” Coates devotes parts of his book to how the preconscious brain evolved to aid pattern recognition, helping our ancestors avoid predators and today’s risk-takers make quick decisions. The system is a “parabolic reflector collecting signals inaccessible to conscious mind” and sending messages - a momentary rise in pulse or a sinking sensation - to the body to guide action, he said. “When I was identifying a good
trade, I just knew when it was going to work, there was something different about that train of thought,” Coates said. “I wondered what that something extra was, and now I’ve got a pretty good idea.”
Fitness markers
One of the key takeaways from Coates’s work is that the body and mind are intimately intertwined. Fitness markers like lower body mass index and resting heart rates are correlated with better interoception - good reason for risk-takers to hit the gym, according to the paper. The findings are compelling enough that Coates said he left Cambridge to work with a tech start-up on a product related to his research. He wouldn’t identify the firm. “This is not, you know, ‘May the force be with you,’” Coates said. “It’s not this mystical thing. You have to be trained properly, you have to work out, and you can tune yourself so gut feelings get better. Then you’re in a world of trading that’s just completely new.” Bloomberg News
‘Billionaire hedge-fund investor George Soros is said to overhaul his portfolio when his backache flares up’
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Fiscal fine
Customs data
Shenzhen ship owners pay Google may face up for Australia reef disaster Indonesian tax bill
Vietnam’s 8-month trade surplus higher than estimated
The owners of a Chinese ship that ran aground on the Great Barrier Reef in 2010 agreed to pay Australia A$39.3 million (US$29.6 million) yesterday, in a settlement dismissed by conservationists as “woefully inadequate”. The fully-laden coal carrier Shen Neng 1 hit a shoal in April 2010, leaking tonnes of heavy fuel oil and threatening an ecological disaster. While a catastrophe was avoided, the huge ship gouged a three-kilometre scar in the coral and was stranded for nine days before salvage workers refloated it. The ship’s owner, Shenzhen Energy Transport Co Ltd, and its insurer refused for six years to accept responsibility to make restitution before striking Monday’s out-of-court settlement. “Our on-going actions to pursue funds to clean up the pollution sends an unambiguous signal that damage to the Great Barrier Reef World Heritage Area is unacceptable,” said Environment Minister Josh Frydenberg. He added that the settlement showed Australia would “use every available means to pursue ship owners who are negligent in causing damage to the reef”. AFP
Vietnam recorded a trade surplus of US$2.87 billion in the first eight months of 2016, higher than previous estimate, according to the General Department of Vietnam Customs yesterday. Previously in late August, the country’s General Statistics Office (GSO) estimated that Vietnam would enjoy a trade surplus of US$2.45 billion in January-August period, with export and import revenues totalling US$112.19 billion and US$109.74 billion, respectively. However, the latest report by Vietnam Customs showed that during the period, Vietnam’s export turnover rose 6.4 per cent year-on-year to US$113.2 billion, while its import value saw a slight increase of 0.3 per cent to more than US$110.34 billion. Among the figure, the foreign direct investment sector recorded a trade surplus of more than US$14 billion. The sector’s exports stood at US$79 billion, a 9.2per cent year-on-year increase, and imports were worth about US$65 billion, a 0.1 per cent increase, said the department on its website. Meanwhile, the domestic sector witnessed a deficit of US$11.1 billion in the first eight months. Xinhua
Indonesia plans to pursue Alphabet Inc’s Google for five years of back taxes, and the search giant could face a bill of more than US$400 million for 2015 alone if it is found to have avoided tax payments, a senior tax official told Reuters. Muhammad Hanif, head of the tax office’s special cases branch, said its investigators went to Google’s local office in Indonesia on Monday. The tax office believes that PT Google Indonesia paid less than 0.1 per cent of the total income and value-added taxes it owed last year. Most of the revenue generated in the country is booked at Google’s Asia Pacific headquarters in Singapore. Google Asia Pacific declined to be audited in June, prompting the tax office to escalate the case into a criminal one, Hanif said. “Google’s argument is that they just did tax planning,” Hanif said. “Tax planning is legal, but aggressive tax planning - to the extent that the country where the revenue is made does not get anything - is not legal.” Hanif estimated Google’s tax bill including fines for 2015 could be as much as 5.5 trillion rupiah (US$418 million). He declined to provide an estimate for the five-year period. Reuters